What is a Watch List?
A watch list is a list of securities that regulators, brokerages, research firms, or other entities are interested in monitoring.
How Does a Watch List Work?
Watch lists can be good or bad. An investor can start a watch list, for example, of stocks that he or she wants to keep current on and receive news alerts about.
For example, Moody’s, Standard & Poor’s, and Fitch evaluate companies, countries, states and other entities and assign a creditworthiness rating. These evaluations involve reviewing a company’s competitive environment, financial performance and management ability. When the ratings agency has concerns about a company in light of its current rating and wants to see how the company performs for a while before changing the company’s credit rating, it puts the company on a watch list. This means the agency may lower the company's credit rating.
Why Does a Watch List Matter?
Being placed on a watch list can be harmful to a company’s shareholders and lenders because it is generally a predecessor to receiving a lower credit rating, regulatory investigation or other significant negative event. As mentioned, however, being placed on a watch list can also be a benign event.